Sunday, June 20, 2010

Wile E. Coyote enters into contradiction (beep beep)

“The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” [Marx - Capital, Volume III, Chapter 30]

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There are certain ancient temples, where, perhaps once in decades, the sunlight will shine through a tiny, hidden crack in the temple wall and for only a moment illuminate a small, unnoticed, obscure, hieroglyph among thousands... the one that contains the mystery of mysteries... The old chestnut quoted above is like that, for decades and decades it made little sense and now, sweet mystery of life, at last I know the meaning of it all.

It goes like this:

Because of the intense pressure of needing to be "competitive", over the years business has found ways of producing more and more things to sell, using fewer people at home or using "cheaper" people in other countries to produce them. That is why for many years now workers salaries have been more or less stagnant in real terms. This makes it difficult for impoverished people to purchase all the things that business can produce. This has been "solved" on one hand by more and more "efficiency", technology and cheap foreign labor (thus keeping salaries and prices down) and by lowering interest rates below the rate of inflation, practically begging them to take loans so, in this way, people wouldn't notice that they were poor... almost like giving money away... almost.

Like when Wile E. Coyote, out chasing the roadrunner, runs off a cliff and everything is fine until he looks down and then hoo hooo hooooooooooo thud he crashes to the canyon floor, the lenders got nervous, didn't want to loan any more and wanted their money back, but there actually wasn't any money there when the credit dried up.

Here we see that the "invisible hand" has been working for years and years like a cosmic Bernie Madoff... but unlike in Bernie's case, now the rest of us have to do his time.

But hey, it gets worse.

The Chinese and the Indians are not content with pressing their noses to the candy store window, they want to consume too. Here is my favorite conservative economist Martin Hutchinson on what is coming down the pipe:

I have been predicting for some time now that the inflation-suppressing effect of globalization would soon come to an end, with unpleasant results for all the cheap-money western economies. The decision by the Taiwanese contract manufacturer Foxconn to raise wages in its 300,000-employee Chinese factory by 30%, with an additional 66% to be paid as bonuses based on output, suggests that the cost revolution in outsourcing is now fully upon us. Needless to say, we are wholly unprepared.(...) Food prices in India are currently 16.7% above those of a year ago, while overall wholesale price inflation is rising at 9.6%. Like Chinese, Indian labor costs are outpacing any possible productivity improvements, with wage rises of as much as 20% in urban areas. Not only does this indicate that Indian interest rates need to rise sharply from their current 3.75%, but it also suggests that outsourcers are going to find India as well as China an increasingly expensive place to do business.(...) If the two largest sources of cheap labor that provide manufacturing and service capacity for globalized businesses both have high inflation and there are few alternatives available, then the conclusion is inescapable: cost inflation is about to hit Western economies in a big way.(...) Western sentimentalists are rejoicing currently at the vast improvements in living standards for the Foxconn workforce. They should withhold their joy; the long-term costs of those wage increases will be paid in the West.

So on top of unemployment, stagnant salaries, paying down debt, reassuring the markets and no credit, we are going to have inflation too. The answer to all of this of course is more productivity, more efficiency, not raising salaries, while inflation eats away what little buying power those salaries had.

But, of course if people are out of work and prices are going up, they are not going to be buying much stuff, so a lot of Chinese and Indian factories are going to close

This is what the old guy who opened this rant used to call "contradictions".

The result... Well, many years ago, when I was a little boy, my dad, who though a Brooks Brothers clad executive, was a fanatical Democrat, used to play a practical joke at election time; when he took cabs or went for lunch at expensive restaurants, he would leave really stingy tips with a cheery, "Vote Republican!".

When I was a boy that was a joke...

Nowadays that is probably what the people getting stiffed are going to do... vote Republican.

Machiavello never goes out of date, that is just how the game is played by the few who know how to play it. The his thought was put into action before the system had really come to maturity, when it was in an "embryo" stage. With India and China beginning to consume, as Hutchinson points out, the world system is beginning to look, for the first time, something like what Marx projected. We may see some incredible things in the next 20 years or so.

Google gremlins garbled my previous comment, it should read:The trouble with Marx is that his thought was put into action before the system had really come to maturity, when it was in an "embryo" stage. With India and China beginning to consume, as Hutchinson points out, the world system is beginning to look, for the first time, something like what Marx projected. We may see some incredible things in the next 20 years or so.